Paul M. Hamburger. t:

Transcription

1 Employment and Labor Forum: Managing The Affordable Care Act Avoiding Unforeseen and Costly Penalties Associated with Contract Employees and Wellness Programs Presentation to: Association of Corporate Counsel, National Capital Region Paul M. Hamburger (202) Johann Lee (301) March 7, 2016

2 Paul M. Hamburger t: Paul M. Hamburger is co-chair of Proskauer s Employee Benefits and Executive Compensation Practice Center and head of the Washington, DC office. Paul's practice involves advising employers on all aspects of their employee benefit programs, including matters affecting tax-qualified retirement plans, such as: 401(k) plans, ESOPs, and defined benefit plans, including cash balance plans; executive compensation plans; and welfare benefit plans, including cafeteria plan, COBRA, and health care reform (PPACA) issues. He also advises employee benefit plan trustees and service providers on ERISA and employee benefit plan-related matters. Paul has extensive experience in negotiating service provider and outsourcing agreements, having represented employers and plan administrators as well as service providers. Paul frequently represents clients before government regulatory agencies, including the Internal Revenue Service, Department of Labor and Pension Benefit Guaranty Corporation. Paul is described in Chambers USA by clients as "a creative, business-oriented and brilliant lawyer who educates and enlightens." US Legal 500 also distinguishes Paul for his benefits-related tax and employee benefits practices: One of the best in his field; he inspires a high level of confidence and is a pleasure to work with." Paul is a frequent speaker on employee benefit matters. He also served for several years as an adjunct professor at Georgetown University Law Center teaching the LL.M. tax course on ERISA Health and Welfare Benefit Plans. Paul is an author of numerous articles and other publications on employee benefits matters, including three nationally circulated loose-leaf publications published by Thompson Information Services: Mandated Health Benefits The COBRA Guide, The Guide to Assigning & Loaning Benefit Plan Money, and The Pension Plan Fix-It Handbook. Most recently, he was the managing author of the 6 th edition of The New Health Care Reform Law What Employers Need to Know (A Q&A Guide), published by Thompson Information Services. 2

3 Johann Lee Johann Lee is Vice President & Senior Counsel at Marriott International, Inc. For over 18 years, Johann has focused on employee benefits law matters, with particular emphasis on health and welfare benefits aspects. He has authored or co-authored numerous course materials and practitioners guides on employee benefits law topics, including HIPAA privacy, the DOL claims procedure regulation, cafeteria plan compliance, and the Affordable Care Act. Prior to joining Marriott, Johann was a member of the Employee Benefits and Executive Compensation practice of Alston & Bird LLC in its Washington, D.C. office. Johann received his law degree from the Northwestern University School of Law, and his B.A. in Philosophy from the University of Michigan. t: johann.lee@marriott.com 3

4 Overview of Today s Presentation Current State of the Affordable Care Act ACA and Staffing Agency Issues Wellness Program Update 4

5 5 The Affordable Care Act: 2016 and Beyond

6 6 Slide Title

7 7 Employer Response

8 Current State of the ACA The Affordable Care Act (ACA) is almost six years old - The law was signed by the President on March 23, Employers began implementing ACA mandates on September 23, The employer shared responsibility mandate ( pay-or-play ) was originally scheduled to become effective for plan years beginning in 2014, but this was delayed until 2015 (or 2016 if the employer has fewer than 100 full-time employees) 8

9 Current State of the ACA (cont d) Over the past six years, employers have had to adopt numerous changes to their health plans to comply with the ACA, including: - Dependent coverage until age 26 - Prohibition on annual or lifetime limits on essential health benefits - Prohibition on pre-existing condition exclusions - Disclosure of plan information on summaries of benefits and coverage (but, more changes to come) - No cost-sharing for preventive health care - Expanded claims and appeals rights for covered individuals - Employer shared responsibility 9

10 Not Done Yet Future ACA Requirements Although many of the ACA s mandates have been implemented including pay-or-play and information reporting, three major requirements remain to be fully implemented: - Employer Shared Responsibility: Beginning in 2015 (2016 for employees with between 50 and 99 full-time employees), employers must offer minimum essential coverage that is affordable and has minimum value of at least 70% (95% beginning in 2016) to full-time employees or face penalties - How will these rules and penalties be applied in practice? - Information Reporting: By March 2016, employers must complete and distribute ACA information reporting forms relating to coverage offered during the 2015 plan year - Cadillac Tax: Employers could be subject to a 40% excise tax on high-cost health care; originally slated for 2018, now pushed off to

11 ACA and Staffing Agency Agreements When an employer hires workers from third-party staffing agencies, who is responsible for ACA compliance? - Same/similar issues arise for independent contractors, leased employees, etc. Before drafting contractual provisions to protect the clientemployer, need to consider what key ACA rules apply 11

12 The Employer Shared Responsibility Mandate (Play-or-Pay) The employer shared responsibility (or play-or-pay) mandate requires Applicable Large Employers (ALEs) to offer affordable/minimum value health coverage to its full-time workforce or pay a penalty Who must comply? ALEs = employers with 50 or more fulltime employees What type of coverage must be offered? - Minimum Essential Coverage (MEC) - Employer-sponsored health plans - Individual health coverage - Coverage under certain government programs (Medicare, CHIP, TRICARE) 12

13 The Employer Shared Responsibility Mandate (Play-or-Pay) (cont d) What type of coverage must be offered? (cont d) - Affordable generally, the self-only cost of coverage must be less than 9.5% of W-2 wages (unless a different safe harbor is selected) - Minimum Value the plan pays at least 60% of the total costs of medical services There are two potential penalties: H(a) or the A-Penalty H(b) or the B-Penalty 13

14 Pay-or-Play Basics the A Penalty Coverage not offered to at least 95% (70% in 2015) of full-time employees (FTEs) and children Employer Doesn t Offer Any MEC Coverage At least one FTE obtains subsidized coverage on exchange $2,000 (indexed) each FTE, reduced by first 30 (80 for 2015) Penalty assessed monthly; on EIN basis 14

15 Pay-or-Play Basics the B Penalty Affordable coverage not offered to all FTEs and children Employer Doesn t Offer Affordable Coverage At least one FTE obtains subsidized coverage on exchange $3,000 (indexed) each FTE who obtains subsidized coverage on exchange Penalty assessed monthly; on EIN basis 15

16 Pay-or-Play Mandate A Penalty No Coverage Penalty Employers that do not offer coverage Employers that do not provide health coverage to at least 95% (70% for 2015) of all FTEs (and their children under age 26) are subject to the A penalty Important considerations: - Only triggered if a FTE goes to a public exchange, enrolls in coverage and receives a premium tax credit from the federal government (i.e., must have an adjusted gross household income between 100% and 400% of the federal poverty line) - The A Penalty does not require that MEC be affordable or provide minimum value - There is no requirement to offer spousal coverage - Assessment is entity-by-entity within a controlled group 16

17 Pay-or-Play Mandate B Penalty Unaffordability Penalty Employers with "unaffordable" coverage Coverage is "affordable" if: 1. Employee's cost for single coverage does not exceed 9.5% (indexed) of household income (or Box 1 W-2 wages or another safe harbor), and 2. Plan provides "minimum value" (it pays at least 60% of costs) 17

18 Pay-or-Play Mandate B Penalty (cont d) Unaffordability Penalty Employers with "unaffordable" coverage (cont d) The B Penalty is $3,000 (indexed) for each FTE who receives a subsidy for Marketplace coverage (not to exceed the "no coverage" penalty) - Penalty is assessed monthly ($250 per subsidy-receiving fulltime employee per month) - Only assessed per employee who gets the credit/subsidy on a public exchange Assessment is entity-by-entity within a controlled group 18

19 The Employer Shared Responsibility Mandate (Play-or-Pay) What is a FTE for purposes of Play-or-Pay? - 30 or more hours of service per week or 130 hours of service per month - Note: this is not the same definition of full-time employee that applies when determining whether an employer is an ALE that definition uses 120 hours per month What is an hour of service? - An hour of service includes: - Hours Worked. Each hour for which the employee is paid, or entitled to payment for the performance of duties; and - Paid-Time Off. Each hour for which the employee is paid, or entitled to payment for a period of vacation, holiday, illness, incapacity (including disability), layoff, jury duty or leave of absence 19

20 Moving to Staffing Agency Issues Who Is an Employee? Regulations require a common law employee approach - For many employers, this is not an issue - Becomes an issue for employers who employ independent contractors, freelancers, 1099 Employees or similar classifications - Also becomes an issue for staffing agency workers - Federal agencies will not respect employer classifications - Will apply common law test e.g., IRS 20 Factor Test - Employers that fail can be assessed unexpected penalties - Consider other laws/legal issues, including labor law implications of joint employers, income and employment tax implications for withholding, immigration (I-9) issues and requirements, etc. 20

21 Who Is an Employee Impact Exposure to A Penalty The 95% Test Could Be An Issue Some relief in 2015 because test is 70% Example: Employer with 1,000 FT Employees & 55 IC s at EIN Offers affordable insurance only to 1,000 FT employees, less than 95% of total 1,055 population IRS audits for 3 years and deems 55 IC s are common law full-time employees with no coverage from employer Penalty (assumes at least one FT IC receives subsidized coverage): $6,150,000 for 3 years of ACA penalty (1, X $2,000 X 3 = $6,150,000) Even higher, considering indexing on the $2,000 penalty 21

22 Who Is an Employee Impact (cont d) Exposure to B Penalty If IC s not included in coverage and some obtain subsidized coverage, penalty can be assessed Example: Employer with 1,000 FT Employees & 50 IC s at EIN - Offers affordable insurance to 1,000 FT employees; Does not offer to 50 IC s - IRS audits and deems 50 IC s are common law full-time employees - No A Penalty because Employer offers coverage to greater than 95% (1,050 X 95% = 998) - If all 50 IC s obtain subsidized coverage, B Penalty is: $150,000 for each year (50 X $3,000 = $150,000) (higher as $3,000 is indexed) 22

23 Who Is an Employee Staffing Company Issues Approach #1 1. Employees are Common Law Employees of Staffing Company - Staffing company is responsible for offering MEC and/or affordable/minimum value coverage - Staffing company is responsible for employer reporting - Staffing company is responsible for all ACA compliance with respect to workers under contract (as is true of all other applicable law) - Contract should be clear that responsibility is on staffing company - Indemnifications should apply accordingly 23

24 Who Is an Employee Staffing Company Issues (cont d) Approach #2: 2. Employees are Common Law Employees of Client Employer - KEY ISSUE: How can client employer take credit for coverage offered by staffing company for purposes of A and B penalties? - Regulatory Safe Harbor: - (i) Contract requires staffing company to provide affordable coverage and - (ii) Client employer charged extra for those who elect coverage - Contract provisions should address coverage provided and requirement to pay more for workers who elect staffing company coverage - How much is enough to charge? 24

25 Who Is an Employee Staffing Company Issues (cont d) 25 Approach #2 Practical Considerations 2. Employees are Common Law Employees of Client Employer - Can client employer mandate that staffing agency provide affordable and minimum value coverage? - What if it isn t for all workers? - Is MEC all that is required under the contract with consequences for failure to ensure coverage is affordable or provides minimum value? - What about subcontracted workers from the staffing agency? - Indemnification issues - Will/should staffing agency indemnify for A penalty exposure? - What if client would have incurred A penalty anyway? Who caused the penalty problem? - What indemnity applies vis-à-vis subcontracted workers?

26 Who Is an Employee Staffing Company Issues (cont d) Approach #2 Practical Considerations 2. Employees are Common Law Employees of Client Employer - Tracking coverage of staffing agency workers - How will client employer verify who did/did not elect coverage? - Signed statements? Enrollment information? - Consider issues re: privacy (including HIPAA privacy) for passing information back to client employer - What if employment status of workers is unclear (e.g., perhaps they are common law employees for ACA purposes but not other benefit plan or employment tax purposes)? - Be careful with representations to workers; consider having them sign agreements concerning what benefits or worker status do and do not apply 26

27 Who Is an Employee Staffing Company Issues (cont d) Approach #2 Practical Considerations 2. Employees are Common Law Employees of Client Employer - Other contract issues - Who is responsible for ACA reporting? Staffing Agency? Client Employer? Both?? - Cooperation provision if staffing agency is notified of possible penalty, staffing agency should contest it; if client employer is notified of possible penalty, staffing agency should cooperate with client employer to resolve the issues - Needs to contemplate any government agency review (IRS, DOL, etc.) - Other ways to charge (e.g., only upon re-classification?) 27

28 ACA Takeaways Review existing staffing arrangements - How many workers? What is your exposure? - Review the staffing agreements - Check responsibility for compliance with ACA/indemnity provisions - Remember to build in compliance with ACA reporting for staffing agency workers - Consider amendments to staffing agreements - Will you draft amendments? Will staffing agency draft? - Will you pay an additional fee for staffing workers who are covered by the staffing agency? If so, how much/how is it determined and verified? - Pay attention to details and the relationship between terms of an amendment and terms of the base agreement - Consider a model ACA amendment 28

29 29 Wellness Program Update

30 Wellness Programs Typical goals of wellness programs: - Educate employees and encourage healthy behaviors - Designed to lower health plan costs (employees are healthier) and increase productivity (employees are not out sick because they are healthier) - Increase productivity/reduce absenteeism - Attract/retain talent; keep up with other employers Studies on wellness programs - Not clear that the benefits of wellness programs are produced in a meaningful way 30

31 Wellness Programs (cont d) Many if not most employers offer some type of wellness program/benefit - Surveys show that significantly more employers use incentives as opposed to disincentives or penalties - Premium reductions/lower copays & deductibles are popular in plan benefits - Gift cards and merchandise (fitbits) are popular outside the plan benefits Reasons why employers don t offer wellness - Not part of corporate culture - Not sure if they work - Not enough internal management support/financial support for wellness programs 31

32 Wellness Programs (cont d) Sample components of wellness programs Employee Assistance Plans Health Risk Assessments Biometric Screening Weight Loss Program Tobacco Cessation Programs Disease Management Programs Exercise Program Wellness Challenges or Competitions On-site Health Coaching Web-based Support or Coaching Telephone Support or Coaching On-site Clinics 32

33 Wellness Programs (cont d) Consider the legal landscape; depending on what is offered, wellness programs are potentially subject to: ADA HIPAA (including HIPAA non-discrimination rules and privacy rules) GINA ERISA COBRA ADEA Title VII Federal/state income tax laws FLSA (believe it or not) ACA (consider application of various fees) Collective Bargaining Obligations Other state laws (e.g., laws potentially preventing discrimination against smokers in the workplace) 33

34 Wellness Programs (cont d) Also, consider the penalties for legal violations. For example: HIPAA/GINA violations are subject to: - IRS penalties of $100 per day for each affected individual - Subject to maximum/minimum penalty amounts - No limit for intentional violations - Separate penalties for uncorrected errors caught on audit - DOL enforcement actions - Private right of action ADA violations, subject to: - EEOC enforcement actions - Actual and compensatory damages (for intentional discrimination) - Total compensatory/punitive damages capped at $300,000 per affected person. - Attorney s fees 34

35 Wellness Programs (cont d) In 2013, the Departments of Health and Human Services, Labor and Treasury released updated regulations governing wellness programs Two types of programs: - Participatory participation in program is enough for reward (i.e., not based on result) - Health-contingent reward is contingent on completing an activity or satisfaction of a standard related to a health factor Under 2013 regulations, reward can be up to 30% of the employee-only cost of coverage (or family coverage if the program is open to family members) - Reward can be up to 50% for tobacco cessation programs 35

36 Wellness Programs (cont d) Participatory Wellness Programs - Reimburse fitness center cost; participate in health risk assessment or testing, without regard to outcomes; rewards for attending smoking cessation program or educational healthrelated programs Health-Contingent Programs - Activity-Based - Complete an activity without regard to outcome (walking, exercising, dieting, etc.) - Outcome-Based - Reward for not smoking; reward favorable results of biometric screening 36

37 Wellness Programs (cont d) Health-contingent programs are subject to increased regulatory scrutiny due to potential for discrimination based on a health factor; must meet five requirements 1. Amount limited to 30% (50% for tobacco use) of applicable cost 2. Reasonably designed to promote health or prevent disease 3. Annual qualification 4. Available to all similarly situated individuals 5. Offer a reasonable alternative and disclose the availability of reasonable alternative - Don t have to say what the reasonable alternative is in advance; plan can tailor it on a case-by-case basis See DOL s website and checklist: 37

38 Wellness Programs (cont d) In 2013, the Equal Employment Opportunity Commissions began expressing concerns that wellness programs could violate the Americans with Disabilities Act (ADA) Recent litigation against employers with wellness programs that were compliant with the 2013 regulations raised complaints by employers and requests for specific guidance In April 2015, the EEOC issued proposed wellness program regulations; final regulations expected

39 Wellness Programs (cont d) EEOC Proposed Regulations - Applies to wellness programs that require disclosure of medical information or include inquiries related to disability - Concerned that rewards can coerce individuals into participating - Program cannot be mandatory (even basic health risk assessments) - Non-participation cannot be penalized; health coverage cannot be conditioned on participation 39

40 Wellness Programs (cont d) EEOC Proposed Regulations (cont d) - Maximum reward is 30% of the employee-only cost of coverage (even if the program is available to family members) - If connected to a health plan, notice must be given to the employee explaining what information is needed, what it will be used for and what protections are in place to maintain privacy The EEOC has solicited comments on a number of topics, so the final regulations may include additional requirements 40

41 Wellness Programs (cont d) GINA - Title I covers genetic non-discrimination in health insurance, including wellness and disease management programs - Title II covers genetic non-discrimination in employment and wellness programs offered outside a group health plan - Allowed to induce employees to participate in health related services - Generally not allowed to induce individuals to provide genetic information Proposed GINA regulations (October 2015) focus on Title II and ability to obtain spouse s medical information 41

42 Wellness Programs (cont d) GINA Regulations - Employers may obtain genetic information as part of wellness program only when program designed to promote health/prevent disease - Individual provides knowing, voluntary and written authorization - Individually identifiable information provided only to individual and licensed health care professionals/counselors providing services - No disclosure of information to employer except in aggregate, non-identifiable terms GINA Proposed Regulations - Allows use of information for covered spouses, subject to similar rules 42

43 Wellness Programs (cont d) Case Law under ADA - Seff v. Broward County, 778 F. Supp. 2d 1370 (S.D. Fla. 2011), affirmed, 691 F. 3d 1221 (11 th Cir. 2012) - Employees who refused biometric screening and health risk assessment had to pay $20 per paycheck - Upheld based on bona fide benefit plan safe harbor - EEOC v. Flambeau, Inc. (W.D. Wis. Dec. 30, 2015) - Employer may condition plan participation on completing HRA and biometric screening - Followed Seff exception for bona fide benefit plan safe harbor EEOC rejects position taken by courts - EEOC will bring/has brought enforcement actions - EEOC relies on voluntariness exception and its proposed regs 43

44 Wellness Programs What works? General educational or informational programs (no rewards) - Newsletters/Lunch-n learn sessions on health related topics Participation in health-related activities (no reward) - Walking program at lunch time that employees can join (or not join) - Free annual flu shot Participation activities to obtain a reward (that is not tied to health plan) - $25 gift card for attending a smoking cessation class - $50 gift certificate for completing a health risk questionnaire Participation activities and reward (regardless of results) tied to employer s health plan - Deductible credit for participating in biometrics just for having blood pressure taken or a cholesterol level checked - Waiver of copayments for pregnant women who obtain pre-natal care 44

45 Wellness Programs What works? (cont d) Offer a reward that is tied to a health plan based on a health factor, such as the results of a biometric test or a health condition such as meeting a specific biometric condition - Discount in employee s health plan contribution that is <30% of cost of employee-only coverage if employee has a BMI of < 30 or meets an alternative standard - Health plan premium surcharge of <50% of cost of employee-only coverage if employee uses tobacco products (or doesn t participate in smoking-cessation program) 45

46 Wellness Programs What is a potential problem? Denying group health plan coverage altogether if an employee does not complete an HRA (notwithstanding Flambeau) Offering both a PPO and HDHP, but requiring employees who decline to participate in wellness program to enroll in HDHP Programs that require unreasonable travel or time commitments to earn reward or impose unreasonable/intrusive procedures Discount of 30% of the cost of employee-only coverage to individuals who achieve a specified BMI (or who meet an alternative standard) plus an additional 30% discount for individuals who do not use tobacco (or who participate in a smoking-cessation program) Surcharge of 20% of the cost of employee-only coverage if fail to provide certification of not having used tobacco products in the prior 12 months; plan waives surcharge for individuals who find, pay for, and complete a smoking-cessation program 46

47 Wellness Program Takeaways Consider why you want/need wellness programs - Is it important to the culture? - Is it cost driven? Design a program to respond to those wants/needs Consider the interplay among all of the various applicable laws governing wellness Consider this basic smell test If you were asked to participate in the program for the reward offered/penalty avoided, would you? If not, what bothers you about it? That concern might be an indication of a legal issue. 47

48 Employment and Labor Forum: Managing The Affordable Care Act Avoiding Unforeseen and Costly Penalties Associated with Contract Employees and Wellness Programs Your questions 48

49 Employment and Labor Forum: Managing The Affordable Care Act Avoiding Unforeseen and Costly Penalties Associated with Contract Employees and Wellness Programs Presentation to: Association of Corporate Counsel, National Capital Region Paul M. Hamburger (202) Johann Lee (301) March 7, 2016 The information provided in this slide presentation is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the firm, our lawyers or our clients. No client-lawyer relationship between you and the firm is or may be created by your access to or use of this presentation or any information contained on them. Rather, the content is intended as a general overview of the subject matter covered. Proskauer Rose LLP (Proskauer) is not obligated to provide updates on the information presented herein. Those viewing this presentation are encouraged to seek direct counsel on legal questions. Proskauer Rose LLP. All Rights Reserved.